Union Budget 2021-22: Major Changes In GST Law

The Union Budget for financial year 2021-22 has been laid in Parliament on 1st February, 2021 by the Finance Minister. The Budget revolves around three themes i.e., inspirational India, economic development and caring society. The Budget made a statement that of all the structural reforms, the Goods and Services Tax (GST) has been the most historic in our country. The Goods and Services Tax has been gradually maturing into a tax that has integrated the country economically. It has consolidated numerous taxes and cesses to one tax and facilitated formalization of economy. It has resulted in the efficiency gains in logistic and transport sectors. The turnaround time for trucks has witnessed a substantial reduction to the tune of 20% due to abolition of check posts in GST. The dreaded Inspector-Raj has also vanished.

On GST, the budget emphasized that simplification is ongoing. A simplified return shall be implemented which is under pilot run. It will make return filing simple with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow and overall simplification. Refund process has been simplified and has been made fully automated with no human interface.

It is to be noted that deep data analytics and AI tools are being used for crackdown on GST input tax credit, refund, and other frauds and to identify all those who are trying to game the system. Invoice and input tax credit matching is being done wherein returns having mismatch more than 10 percent or above a threshold are identified and pursued. Significant policy level changes have also been made. GST rate structure is also being deliberated so as to address issues like inverted duty structure.

Major changes proposed in the Budget 2021-22 (Finance Bill, 2021) related to GST

1. Scope of term ‘supply’ enhanced (Clause 99 of Finance Bill, 2021)

• New clause (aa) in sub-section (1) of Section 7 of the CGST Act, 2017 (Scope of ‘supply’) has been inserted retrospectively with effect from the 1st July, 2017, so as to ensure levy of tax on activities or transactions involving supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
• The person and its members shall be deemed to be separate entities and transactions between them shall be deemed to take place from one person to another (applicable to clubs, associations etc.)
• Simultaneously, similar provision specified under Paragraph 7 of Schedule II to the CGST Act has been omitted. Aforesaid change has been made effective w.e.f. 1st July 2017.

2. New condition to avail Input Tax Credit (Clause 100 of Finance Bill, 2021)

• New clause (aa) to sub-section (2) of the section 16 of the CGST Act, 2017 has been inserted to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.
• Reflection of inward invoices is GSTR-2B is being made as a mandatory condition for availing ITC under the GST law.

3. GST Audit to be discontinued (Clause 101 and 102 of Finance Bill, 2021)

• Section 35(5) is proposed to be omitted so as to remove the mandatory requirement of getting annual accounts audited and the reconciliation statement submitted by specified professionals.
• Section 44 on annual return is proposed to be substituted by a new section so as to:
• Remove the mandatory requirement of furnishing a reconciliation statement duly audited by specified professionals.
• Provide for filing of annual return on self certification basis.
• Empower the Commissioner to exempt any class of taxpayers from filing of annual return.
• These changes will come into effect from a notified date after enactment of Finance Bill, 2021 (may be FY 2021-22 and onwards).
• Such amendment will be prospective and not retrospective.
• The present provisions shall continue to apply for financial year 2019-20 and 2020-21.
• It is, however, desirable to continue to get GST audit / due diligence conducted on voluntary basis, given its inherent advantages to management /board/statutory auditors and others.

4. Interest on net tax liability (Clause 103 of Finance Bill, 2021)

• Section 50 of CGST Act, 2017 provides for interest on delayed payment of tax.
• Finance Bill, 2021 has proposed to substitute proviso to section 50(1) so as to charge interest on net cash liability.
• Thus, interest shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.
• This will be effective retrospectively w.e.f. 1.7.2017 implying that department will have to forego such demands raised till now and interest will only be payable on tax liability payable in cash.

5. Scope of self-assessed tax expanded (Clause 105 of Finance Bill, 2021)

• An explanation to sub-section (12) of section 75 of the CGST Act has been inserted to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37, but not included in the return furnished under section 39.
• Any tax difference between the returns, GSTR-3B vis-à-vis GSTR-1, may now be recovered directly from the taxpayer without any show cause notice u/s 74 or 75 of the CGST Act.

6. Provisional attachment (Clause 106 of Finance Bill, 2021)

• Presently, where during the pendency of any proceedings u/s 62, 63, 64, 67, 73 or 74, the Commissioner of the opinion that for the purpose of protecting the interest of Government revenue, it is necessary to do so, he may by order in writing, attach provisionally any property including bank account belonging to taxable person (in manner as prescribed).
• The proposed amendment provides that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.
• Now after enactment of Finance Bill, such attachment could be done from the initiation of proceedings stage itself.
• Such attachment can be of property belonging to taxable person or any specified person under section 122(1A).
• However, this would be applicable to proceedings could under Chapter XII, XIV or XV of the Act.
• This will be applicable from notified date after enactment of Finance Bill.

7. Zero rated supplies / SEZ supplies (Clause 114 of Finance Bill, 2021)

• Zero rated supplies made to special economic zone will now be restricted to supplies made for authorized operations.
• Only notified class of taxpayers or notified class of goods or services will be eligible for zero rated supplies on payment of integrated tax (IGST).
• Non-realization of sale proceeds within prescribed time limits under Foreign Exchange Management Act, 1999 (FEMA) for export of goods to entail return of refund amount along-with applicable interest.

8. Other Changes

• Seizure and confiscation of goods / conveyances in transit to be a separate proceeding for recovery of tax (section 74).
• De-linking of proceedings u/s 129 and u/s 130 relating to detention / seizure / release of goods / conveyances in transit and confiscation of goods / conveyances & levy of penalty (section 129 and 130).
• Jurisdictional Commissioner empowered to call for information from any person (section 151 and 168).
• Information gathered not to be used for any proceedings without giving an opportunity of being heard to such person (section 152).

Epilogue

The aforementioned changes and other amendments proposed in the Finance Bill, 2021 shall come into effect from the date when the same will be notified in official gazette, after the enactment of the Finance Bill, 2021. Except the amendment relating to payment of tax on net cash liability and scope of supply (which are applicable w.e.f. 1.7.2017), all other proposals are prospective in nature.